CFOs Signal Optimism Despite Uncertainty


by FEI Daily Staff

Despite uncertainty about a variety of external risks, surveyed CFOs remained optimistic about their organization’s prospects for the eighth straight quarter.

According to the latest edition of Deloitte’s CFO Signals survey, factors such as industry regulation, government policy, equity market volatility and the performance of the European and Chinese economies are not overshadowing favorable trends including strength in North American markets.

“CFOs hold a positive outlook for 2015, despite domestic and global uncertainties remaining on the horizon,” said Sanford Cockrell III, national managing partner, Deloitte LLP, and leader of the Deloitte CFO Program. “Key metrics look consistently stronger and confidence in the North American economy is increasing. With stronger demand, CFOs appear to have the confidence to raise prices on products and services.”

Stronger Markets

One of the major factors improving CFO confidence is continuing economic improvement in North America, with 63 percent of respondents describing conditions as good, and the same percentage expecting better conditions a year from now.

These figures compare with 44 percent , and 55 percent , respectively, at the end of 2014's third-quarter.

CFOs had mixed opinions about other markets. Asked about China, 34 percent reported favorable conditions, while only 2 percent of respondents described conditions in Europe as good (and only 13 percent expecting improvements in Europe over the next year).

Sentiment Rises

Asked about their company's financial prospects, nearly half of the CFOs (49 percent ) expect revenue to rise over the next year (with 16 percent calling for a revenue decrease). Optimism was strongest among CFOs in healthcare and pharmaceuticals, financial services, technology, and media and entertainment, with manufacturing, energy, and services CFOs reporting declining growth expectations.

Looking at operational metrics, 90 percent of CFOs expect year-over-year gains in revenue, but expectations for the rate of that growth decreased slightly (from 6.8 percent in the third quarter to 6.0 percent in the fourth).

CFOs reported similar expectations for earnings growth, with 86 percent calling for higher profits, albeit at a slightly lower growth rate (9.7 percent this quarter, compared with 10.9 percent in the third quarter).

With optimism increasing and sales and earnings forecasts remaining strong, 55 percent of CFOs said their organizations plan to raise prices this year, compared with 18 percent who said prices will be lower.

“Many CFOs’ worries about price-based competition and irrational competitor behavior have subsided,” said Greg Dickinson, a Deloitte director who leads the Signals survey. “Pricing strength seems to be a good indication of companies’ growing confidence.”

 Investing for Growth

Given their optimistic outlook, it's not surprising that CFOs say they plan to increase capital investment over the coming year. Nearly two-thirds (62 percent ) of CFOs plan to increase capital spending, with expectations averaging 5.5 percent (compared with 5 percent in the last quarter).

Technology CFOs reported the highest expectations for capital growth, while healthcare/pharma and services respondents say they expect capital investments to decrease over the next 12 months.

Companies also plan to increase domestic hiring, with 60 percent of CFOs expecting year-over-year headcount growth.

Sources of Concern

Asked about their most worrisome risk factors, concerns about the durability of the global economic recovery increased among CFOs in nearly all industries. Concerns about U.S. economic performance decreased, but fears about unfavorable conditions in Europe and China increased.

Other factors cited by the respondents included:

  • Interest rates and foreign exchange volatility
  • Geopolitical events
  •  Competition
  •  Policy and regulation
  •  Execution
  •  Cybersecurity
The survey of 102 CFOs of North American companies was completed in late November.